Financial Crisis Bodes Ill for M.B.A. Programs

Students Are Bracing for Tight Job Market; Banks' Freeze Hiring

By

Cris Prystay

Updated Nov. 7, 2008 12:01 a.m. ET

When Adrian Chan enrolled in an M.B.A. program at Hong Kong University of Science and Technology last year, he hoped to use the degree to jump industries, from information technology to investment banking.

Mr. Chan, who majored in finance in his M.B.A., pictured himself structuring derivatives or selling equities at a top-tier bank in his hometown of Hong Kong -- and earning a lot more than he did as a software developer in his past jobs at Amazon.com Inc., in Seattle, and Oanda Corp., in Toronto. Mr. Chan, who'll graduate in December into the worst financial-sector meltdown in recent history, is now perusing IT job ads.

"It's a much more competitive job market," he says. "The employers who are hiring want people with experience, and there's lots of experienced people who've lost their jobs and looking for work. For those of us switching careers, it's going to be much harder."

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The fallout from the financial crisis is already starting to echo through the halls of the world's business schools. Students who had hoped for a finance career are looking elsewhere -- or bracing themselves for short-term work at much lower pay.

Admissions officers are starting to see a big jump in applications for full-time M.B.A. programs, as professionals faced with a soft job market look for ways to ride out the storm and burnish their r&eacute;sum&eacute;s. Applications for executive M.B.A.s, which attract more senior executives whose employers typically pick up some or all of the tab, will likely drop: Companies are looking for ways to trim budgets as the global economy slows, and executive education is often seen as an extra that can go.

For most investment banks, new hires have been categorized as another "extra" that has to go, too. Many big banks have put on a hiring freeze and vowed to trim existing staff. That's likely to prompt some M.B.A. students to switch from a finance concentration to other areas, like marketing -- or at least recast their r&eacute;sum&eacute;s to better target jobs in areas outside banking, M.B.A. professors say.

"It's early days, but even if we're not seeing that yet we will see more of it," says Jake Cohen, dean of Insead's M.B.A. program. "We had some students who had summer internships at places like Lehman, and those students are looking to switch to consulting or industry jobs." The French business school has campuses in Fontainebleau, outside Paris, and in Singapore. Insead's M.B.A. is a general management program that doesn't offer different majors.

That's not the case at HKUST -- and many M.B.A. students do take a finance concentration. Typically half the class winds up in jobs in Hong Kong's finance sector.

"We don't expect that this year, and we are warning our students that there will be a real tightening, whether temporary or not, and headcounts are being reduced at a lot of the big Western banks," says Steven DeKrey, HKUST's senior associate dean and M.B.A. program director. Mr. DeKrey, who's also the chairman of the American Chamber of Commerce in Hong Kong, says Amcham's members indicate that the hiring situation will get even grimmer, and nobody has any idea when it might improve. "Even the JP Morgans, the Morgan Stanleys, the real strong players who are on our board here, are not able to look too far out," says Mr. DeKrey.

There is one likely positive impact, educators say: Smart people who are usually snapped up by banks will wind up elsewhere in the economy, bringing a boost to other sectors.

"It'll break the hold that investment banks have on talent. The world's best investment banks traditionally take the best graduates from programs like ours," says Stephen Chambers, director of the M.B.A. and executive M.B.A. degrees at Oxford University's Sa&iuml;d Business School. "I think one optimistic outcome is that the really brilliant people who used to go straight from Oxford to Lehman or Goldman are going to do something else interesting -- that might well be a microfinance initiative or an entrepreneurial venture or something completely different."

Others are likely to bring their new M.B.A. skills back to their old sector. Mr. Chan, who's doing the last few classes on a part-time basis, recently landed a six-week contract with Royal Bank of Scotland in Hong Kong. It's a rolling contract that could continue, but Mr. Chan has no idea where that will lead. RBS is one of the largest recipients of the U.K. government's bailout package, and executives there are widely expected to start trimming the organization.

The few full-time entry-level investment-banking jobs available in Hong Kong pay about 50% less than Mr. Chan had expected when he started his M.B.A. "Salary levels are coming down," he says. "If I do get a permanent job in banking, it'll be a pay drop for me." He's now going to cast the net wider and look for IT jobs as well.

The financial meltdown may be bad news for M.B.A. students, but it's good news, in part, for M.B.A. schools. Applications tend to rise sharply when economies lose steam.

"Given the job market is not so good, people say 'let me invest in myself for the next year or two,' " says Mr. Cohen, at Insead's Singapore campus. He expects applications for Insead's full-time M.B.A. program to go up by 25% this year.

One challenge facing M.B.A. students is funding: it's getting harder to get student loans in the U.S., where banks, hit by the credit squeeze, are lending less. Banks in other parts of the world are likely to follow suit as credit dries up world-wide.

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